High soybean prices take bite out of biodiesel

One of the biggest short-term threats to the profitability of the U.S. biodiesel industry is the rising price of soybeans, which forces the industry to turn to feedstocks other than soybeans or shut down or slow down operations, according to Kenneth “Pete” Moss of FBA Consulting, Memphis, speaking at the AgTechnology Field Day at Agricenter International, Memphis.

“I believe the biodiesel industry is somewhat a victim of its own success. We've grown rapidly, and with all the construction activity and plants coming on line, we're seeing a lot of speculation in the soybean market right now. Soybean oil should be in the 25-cent per pound range.”

Instead, with soybean futures at around $8.50 a bushel, Chicago Board of Trade soybean oil futures had climbed to almost 40 cents a pound by July 18, noted Moss. “It takes 7.5 pounds of soybean oil to make a gallon of biodiesel. Forty cents a pound times 7.5 equals $3 per gallon invested in the oil itself. That's before you do any processing. That's a pretty expensive starting point to make biodiesel. Once soybean oil prices get too high, biodiesel plants have to either shut down, slow down or use animal fat or some other type of oil.” Corn futures have also risen with the booming ethanol industry, however, U.S. producers planted a huge corn crop this year, keeping downward pressure on corn futures.

“We can expect quite a bit of volatility in the markets. This fight for acres between soybeans and corn is quite interesting, and for a farmer, it makes it tough to know what to plant from one year to the next.”

One way to solve the problem that high soybean and corn prices have on biofuel profitability is through the development of crops and technologies that put more cheap feedstock on the market, according to Moss.

“We need to plant or produce different crops like high oil soybeans, canola, camelina (a weed with 40 percent oil), castor, algae, high oil corn, high starch corn and cellulose. I know there have been efforts to produce canola here in the Mid-South and to be quite honest, the problem is we didn't know where to process it.”

Moss noted that oil could be removed from corn currently being used in the production of ethanol. “There's no reason to do what we're doing now, sending the oil to the ethanol plant. If oil is worth $600 a ton, why sell it for $100 a ton?” The Mid-South also needs local processing plants tied to these crops “where a farmer has a place to deliver and get the value from it. We believe there are whole new markets here.”

Moss said his company plans to work with Agricenter International to introduce new crops to the biofuel industry. “But we're not going to stop there. We're also going to put in pilot processing plants so we can grow crops and process them into either biodiesel or ethanol right here on a pilot scale. We can have a model for farmers wanting to know how to put it all together.”

There should be plenty of financial incentive to develop the type of agricultural model Moss envisions, especially with oil and fuel prices spiraling upward. “In 1995, crude oil prices were around $20 a barrel. Today, we're up around $75 a barrel. Meanwhile diesel fuel in 1995 was 50 cents a gallon. Today, it's over $2 a gallon.

“In 2005, Hurricane Katrina spiked the market for diesel fuel, which had an impact on the economy. But what it really pointed out was the vulnerability of our fuel economy. It doesn't take much crisis to upset the balance and create dramatic swings.”

Moss noted that a July 17 report from the National Petroleum Council said the petroleum industry alone could not meet projected soaring demand for oil, which could hit 120 million barrels per day by 2030 — from the present-day level of 84 million barrels per day.

“In China, there is a car for every 800 people. If they just double the number of automobiles, it represents a tremendous amount of fuel usage. We in the United States are not the primary drivers of high fuel costs. It's coming out of the Asian region.”

In addition, “all the things we process from petroleum are getting more and more expensive because the price of petroleum is going up. From biofuel production, we have biochemicals, bioplastics, functional fluids and other fiber products that we can generate and have the production capabilities here in the Mid-South.”

According to Moss, the outlook for biodiesel production under favorable economic conditions shows a rise to 2.7 billion gallons by 2017. Under unfavorable conditions, the increase is to 1.4 billion gallons by 2017. Meanwhile, biodiesel has been growing at a rate of over 100 percent per year since 1999, “a remarkable growth pattern.”

Biofuel is here to stay, Moss says. “The market today really seems to be pulling biofuels. That's a big difference compared to previous attempts to push it into the market.”